The first requisite of a contract is that the parties should have reached agreement. Generally speaking, an
agreement is made when one party accepts an offer made by the other party.
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COMMUNICATION OF PROPOSAL
Section 4(1) Contracts Act 1950
The communication of a proposal is complete when it come to the knowledge of the person to whom it is
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made.
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Unless there is a communication of the proposal there can be no acceptance to form an agreement. 1]
The fact that the other party has done something which coincides with proposal without being aware of
the proposal does not bring an agreement into being. A party accepting the proposal must be aware of its
existence.
In one sense a proposal cannot take effect until it is received, for until the offeree knows about it, he can
take no action in reliance on it.
Eg. A party who usually returns a lost property to its owner cannot legally claim a reward if he is unaware
of it at the time but subsequently discovers the existence of an offer of rewards for its return.
R v Clarke (1927) 40 C.L.R
The Australian Government offered a reward for information leading to an arrest and conviction of
persons responsible for the murder of Two Police officers. X and Clarke were arrested and charged with
murder but later Clarke gave information leading to arrest of Y. X & Y were later convicted and Clarke
claimed for the reward. Clarke failed to claim the reward as the information he gave was to clear himself
and not in reliance of the offer to reward.
Taylor v Laird (1856) 25 LJ Ex 329
T resigned as a skipper of Ls ship in the middle of a voyage. T however assisted to sail the ship home.
The court held T cannot claim for fees due as he had failed to make known his offer to sail the ship home
and L had no opportunity either to accept or refuse the offer. No contract existed.
Invitation to Treat
What is an Invitation to treat? An invitation to treat is not a proposal. There can be no acceptance as to
constitute a binding contract. When parties negotiate with the view of making a contract, many preliminary
communications may pass between them before the definite proposal is made. One party may simply
respond to a request for information (eg. By stating the price at which he might be prepared to sell his
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house 2]) That party is then said to make an invitation to treat. In this situation he does not himself make
an offer but invites the other party to do so.
Patridge v Crittenden
Invitation to treat is an offer to make an offer.
Example: display of goods with price tags in a self service supermarket, an advertisement or an auction
inviting bids for a particular article.
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to influenza after using a certain product according to the instructions for a fixed period. The plaintiff read
the advertisement and used the product accordingly but still contracted with influenza. He claimed the
100 pounds from the defendants. The court held that the advertisement was an offer to the world at large
and those who were willing to use the product as instructed had then accepted the offer. Acceptance
need not be communicated to the Defendants. The defendants had in fact deposited 100 pounds into a
bank account for any claims.
TENDER
Tender is also an invitation to treat and the person who announced the tender may accept or refuse the
offer made by the readers of the said tender.
Spencer v Harding (1870) LR 5 CP 561
The defendant had sent out letters of tender for a said article. The Plaintiffs tender was the highest but
the defendant did not accept it. The Court held that the defendant was right to refuse the offer because no
contract had existed between them. A letter of tender is only an invitation to treat.
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acknowledgement of an offer would not be an acceptance, nor is there an acceptance where a person
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who has received an offer to sell goods merely relies that it is his intention to place an order 4]
The main reason for the rule is that it could cause hardship to an offeror if he is bound without knowing
that his offer had been accepted.
However take note that it was discussed Bloxhamis case that there can be a contract if the offeror knows
about the acceptance although it was not brought to his notice by the offeree.
However, there will be no contract if the communication is made by the third party without the authority of
the offeree see Powell v Lee
COMMUNICATION OF ACCEPTANCE
The general rule is that acceptance of a proposal must be communicated to the proposer for there to be a
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binding contract between the parties. 5]
For an acceptance to be communicated it must normally be brought to the notice of the offeror.
Section 4(2) Contracts Act 1950
The Communication of an acceptance is complete
a) as against the proposer, when it is put in a course of transmission to him, so as to be out of the power
of the acceptor, and
b) as against the acceptor, when it comes to the knowledge of the proposer.
Acceptance must ordinarily be communicated and made in some usual and reasonable manner if no
method of acceptance is prescribed. However, if the proposal specifies a particular mode of acceptance
and it is not followed, the proposer is entitled to insist on it. It is essential that the proposer act within a
reasonable time after the communication of acceptance. If he does nothing, he would have been deemed
to have accepted. The duty to object lies with the proposer. Note that the English law differs from our
position, as it does not require such positive objection.
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. An offer lapses after a reasonable time not because this must be implied in the offer but because
failure to accept within a reasonable time implies rejection by the offeree. As a consequence, the court
can take into account the conduct of the parties after the offer was made in deciding whether the offeree
has allowed too long time laps before accepting per Hashim Yeop Sani J.
ACCEPTANCE THROUGH POST
Section 4(2) Contracts Act provides for the exceptions that acceptance is only by communication.
The Communication of an acceptance is complete
c) as against the proposer, when it is put in a course of transmission to him, so as to be out of the power
of the acceptor, and
d) as against the acceptor, when it comes to the knowledge of the proposer.
The proposer is bound when the offeree posts the letter even though the proposer has no knowledge of
the acceptance. When the letter is posted the acceptor has put in a course of transmission in such a way
that he no longer has any control over it. The transaction becomes binding irrespective of any delay or
disappearance in the course of transit. This was clearly stated in Entores Ltd v Miles Far East Corp [1955]
2 QB per Lord Denning
..when a contract is made by post it is clear law throughout the common law countries that
acceptance is complete as soon as the letter is put into the post box and that is the place where the
contract is made .
Ignatius v Bell (1913) 2 FMSLR 115
P sued for specific performance over his rights to purchase Ds land. The option was to be exercised on
or before 20th August 1912. the parties had contemplated the use of post as means of communication. P
sent a notice of acceptance by registered post in Klang on 16th August 1912 but was not delivered until
25th August 1912 because P was away. The letter was at the Post Office until picked up by D. The court
applied Section 4 Contracts Act and held that the option was duly exercised by the P when the letter was
posted on 16th August 1912.
On the other hand, acceptance is complete as against the acceptor, when it comes to the knowledge of
the proposer. While the proposer is bound upon dispatch of acceptance by the acceptor, the acceptor is
not bound until it was actually received by the proposer.
Eg Azizul proposes by letter to sell his house to Samdan and Samdan accepts it in the same manner.
Azizul is bound at the moment Samdan dispatches the letter through the post but he himself is not bound
until it actually reaches Azizul.
** Proposer may protect themselves by stipulating in a proposal that acceptance is complete only upon
receipt.
The postal rule also applies to telegram sent through the post office. Instantaneously communications
such as telephone, telex and fax are governed by the general rule. The case of Brinkibon (1983) 2 AC 34
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affirms the rule in Entores with regards to communication by telex. The court held that it is sound general
rule that where the conditions of simultaneity are met and where it appears to be within the mutual
intention of the parties that contractual exchanges would take place in this way
Reference always be made to the intention of the parties and sound business practice.
REVOCATION OF PROPOSAL
A proposal, once communicated, remains open until it lapses or is withdrawn. The proposer may revoke it
at any time before acceptance.
Section 5(1) Contracts Act 1950..
A proposal may be revoked at any time before the communication of its acceptance is complete against
the proposer but not afterwards
Section 6 Contract Acts states that a proposal is revoked:a. by the communication of notice of revocation by the proposer to the other party.
b. By the lapse of the time prescribed in the proposal for its acceptance, or , if no time is prescribed, by
the lapse of reasonable time, without the communication of the acceptance.
c. By the failure of the acceptor to fulfill a condition precedent to acceptance, or
d. By the death or mental disorder of the proposer. If the fact of his death or mental disorder comes to the
knowledge of the acceptor before acceptance.
Where it is by way of subsection (a) the revocation must be communicated by the proposer to the other
party before it accepts. If acceptance is set by post or telegram, the acceptance is complete as against
the proposer upon posting or delivery of the telegram to the appropriate telegraph office. Withdrawal must
necessarily be communicated by the proposer to the offeree before such posting or delivery.
Eg Azizul proposes by letter sent by post to sell his house to Samdan. Samdan accepts by a letter sent
by post. Azizul may revoke his proposal at any time before or at the moment when B puts his letter of
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acceptance but not afterwards 6]
Byrne v Van Tienhoven (1880) 5 CPD 334
D offered to sell 1000 boxes of tinplates to P. upon receipt of the offer letter, P sent his acceptance by
telegram on 11th October. On 8th October D wrote to P revoking his offer made on 1st October. The
letter of revocation by D was no effect because at the time the P received the letter and he had already
made an acceptance.
** Must the communication of revocation be made by the proposer personally? NB the English position
differs from the local rule. Our law is clearer and avoids this difficulty.
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Section (b) deals with revocation by lapse of time; by way of expiration of time prescribed in the proposal
or if no time is prescribed by the lapse of reasonable time.
Section (c) provides that a proposal may be revoked where the acceptor fails to fulfill a condition
precedent to acceptance.
Financing Ltd v Simson (1962) 1WLR 1184
The Court held that an offer by a hirer under Hire Purchase agreement to the finance company is subject
to a condition precedent that the car be in good condition. Here, the car was stolen and damaged before
the company received the offer from the Hirer. The hirer was not bound by the agreement.
Section (d) deals with the condition when the proposer died or became mentally disordered subsequent
to the communication of proposal. What happens when the acceptance was made without knowing that
the offeror has since died or become mentally unsound?
Re Whelan (1897) 11 R 575
The offer lapsed when the offeree had knowledge of the offerors death.
Bradbury v Morgan (1862) 1 H&C 249
The court held that if the offerors death is not known, acceptance may still be made and effective for a
valid contract.
REVOCATION OF ACCEPTANCE
Section 5(2) Contracts Act 1950:An acceptance may be revoked at any time before the communication of the acceptance is complete as
against the acceptor, but not afterwards.
Illustrations
A proposes by letter sent by post, to sell his house to B. B accepts the proposal by letter sent by post. B
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may revoke his acceptance at any time before or at the moment when the letter communicating A, but not
afterwards.
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1] Section 2(a) Contracts Act
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2] Harvey v Facey [1893] AC 552
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3] Fisher v Bell [1961] 1QB
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4] OTM Ltd v Hydranautic [1981] 2 Llyods Rep 211.214
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5] Great Northern Railway v Withan [1873] L.R 9 CR
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6] see illustration Section 5
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